UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-13192
ANGELES INCOME PROPERTIES, LTD. III
(Exact Name of Registrant as Specified in Its Charter)
California 95-3903984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2003
Assets
Cash and cash equivalents $ 114
Receivables and deposits 8
Other assets 17
Assets held for sale (Note C) 1,154
$ 1,293
Liabilities and Partners' (Deficiency) Capital
Liabilities
Other liabilities $ 46
Liabilities related to assets held for sale (Note C) 100
Partners' (Deficiency) Capital
General partners $ (19)
Limited partners (86,738 units issued and
outstanding) 1,166 1,147
$ 1,293
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues:
Total revenues $ -- $ -- $ -- $ --
Expenses:
General and administrative 29 37 55 60
Total expenses 29 37 55 60
Loss from continuing operations $ (29) $ (37) $ (55) $ (60)
Income from discontinued operations
(Note C) 37 48 25 112
Net income (loss) $ 8 $ 11 $ (30) $ 52
Net income allocated to general
partners (1%) $ -- $ -- $ -- $ 1
Net income (loss) allocated to limited
partners (99%) 8 11 (30) 51
$ 8 $ 11 $ (30) $ 52
Per limited partnership unit:
Loss from continuing operations $ (.33) $ (.42) $ (.63) $ (.68)
Income from discontinued operations .42 .55 .28 1.27
Net income (loss) per limited
partnership unit $ .09 $ 0.13 $ (.35) $ 0.59
Distributions per limited partnership
unit $ -- $ 1.71 $ -- $ 1.71
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 86,920 $ 1 $43,460 $43,461
Partners' (deficiency) capital
at December 31, 2002 86,738 $ (19) $ 1,196 $ 1,177
Net loss for the six months
ended June 30, 2003 -- -- (30) (30)
Partners' (deficiency) capital
at June 30, 2003 86,738 $ (19) $ 1,166 $ 1,147
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net (loss) income $ (30) $ 52
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 112 119
Change in accounts:
Receivables and deposits -- (2)
Other assets (12) (7)
Accounts payable (4) --
Tenant security deposit liabilities 2 --
Accrued property taxes (32) (16)
Due to affiliates 15 (29)
Other liabilities 20 41
Net cash provided by operating activities 71 158
Cash flows used in investing activities:
Property improvements and replacements (15) (14)
Cash flows used in financing activities:
Distributions to partners -- (150)
Net increase (decrease) in cash and cash equivalents 56 (6)
Cash and cash equivalents at beginning of period 58 135
Cash and cash equivalents at end of period $ 114 $ 129
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Angeles Income Properties,
Ltd. III (the "Partnership" or "Registrant") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Angeles Realty Corporation II (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 2003, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2003. For further information, refer to the financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the year
ended December 31, 2002. The Managing General Partner is a wholly owned
subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
provides accounting guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Partnership adopted SFAS 144 effective January 1,
2002. In accordance with SFAS 144 Lake Forest Apartments is considered as assets
held for sale as of June 30, 2003. As a result, the accompanying consolidated
statements of operations are restated as of January 1, 2002 for the year ended
December 31, 2002 to reflect the operations of Lake Forest Apartments as loss
from discontinued operations. The consolidated balance sheet reflects the assets
and liabilities of Lake Forest Apartments as assets held for sale and
liabilities related to assets held for sale, respectively. Approximately
$344,000 and $424,000 in revenues is included in the loss from discontinued
operations of Lake Forest Apartments for the six months ended June 30, 2003 and
2002, respectively.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides (i) for certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Partnership's property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$15,000 and $22,000 of management fees for the six months ended June 30, 2003
and 2002, respectively, which is included in operating expenses.
The Partnership Agreement provides for a fee equal to 10% of the "net cash from
operations", (as defined in the Partnership Agreement) to be paid to the
Managing General Partner for executive and administrative management services.
This fee is calculated and accrued quarterly. During the six month periods ended
June 30, 2003 and 2002, the Managing General Partner earned fees of
approximately $6,000 and $14,000, respectively which is included in general and
administrative expense. A fee of approximately $21,000 was earned for the twelve
months ended December 31, 2002, and at June 30, 2003, a total of approximately
$26,000 of these fees is included in Due to affiliates on the accompanying
balance sheet.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $26,000 and
$23,000 for the six months ended June 30, 2003 and 2002, respectively, which is
included in general and administrative expenses.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Partnership insures its property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the six months ended June 30, 2003 and 2002,
the Partnership was charged by AIMCO and its affiliates approximately $11,000
and $14,000, respectively, for insurance coverage and fees associated with
policy claims administration.
Note C - Subsequent Event
On July 31, 2003, the Partnership sold Lake Forest Apartments to an unaffiliated
third party for $4,400,000. After payment of closing costs the net proceeds
received by the Partnership were approximately $4,114,000. The sale of the
property resulted in a gain on the sale during the third quarter of 2003 of
approximately $2,948,000. In accordance with SFAS No. 144, the assets and
liabilities of the property have been classified as held for sale at June 30,
2003 and the operations of the property have been shown as income from
discontinued operations for the six months ended June 30, 2003 and 2002.
Revenues for the six month periods ended June 30, 2003 and 2002 were
approximately $344,000 and $424,000, respectively.
Subsequent to the sale of Lake Forest Apartments on July 31, 2003, the
Partnership approved a distribution of sale proceeds of approximately $3,882,000
or $44.44 per limited partnership unit. Because Lake Forest Apartments was the
only investment property held by the Partnership, the Managing General Partner
is now in the process of winding up and dissolving the Partnership. The Managing
General Partner expects that a final distribution will be made after all the
Partnership's expenses from the sale and costs of liquidation are finalized.
Note D - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing General Partner and
several of their affiliated partnerships and corporate entities. The action
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities that were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint, which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court dismissed without leave to amend certain of the plaintiffs' claims. On
February 11, 2002, plaintiffs filed a motion seeking to certify a putative class
comprised of all non-affiliated persons who own or have owned units in the
partnerships. The Managing General Partner and affiliated defendants opposed the
motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for
class certification and took the matter under submission after further briefing,
as ordered by the court, was submitted by the parties. On July 10, 2002, the
Court entered an order vacating the trial date of January 13, 2003 (as well as
the pre-trial and discovery cut-off dates) and stayed the case in its entirety
through November 7, 2002 so that the parties could have an opportunity to
discuss settlement. On October 30, 2002, the court entered an order extending
the stay in effect through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The Heller action was brought as a purported
derivative action, and asserted claims for, among other things, breach of
fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial
dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the
Heller action with the Nuanes action and stated that the Heller action was filed
in order to preserve the derivative claims that were dismissed without leave to
amend in the Nuanes action by the Court order dated July 10, 2001. On October 5,
2001, the Managing General Partner and affiliated defendants moved to strike the
first amended complaint in its entirety for violating the Court's July 10, 2001
order granting in part and denying in part defendants' demurrer in the Nuanes
action, or alternatively, to strike certain portions of the complaint based on
the statute of limitations. Other defendants in the action demurred to the
fourth amended complaint, and, alternatively, moved to strike the complaint. On
December 11, 2001, the court heard argument on the motions and took the matters
under submission. On February 4, 2002, the Court served notice of its order
granting defendants' motion to strike the Heller complaint as a violation of its
July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs
filed a notice appealing the order striking the complaint. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provided for the limitation of the allowable costs which the
Managing General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment property consists of one apartment complex, Lake
Forest Apartments located in Brandon, Mississippi. The average occupancy of the
property for the six months ended June 30, 2003 and 2002 was 82% and 89%,
respectively. The Managing General Partner attributes the decrease in occupancy
to the unfavorable economic conditions in the local market area.
Results from Operations
The Partnership recognized a net loss for the six months ended June 30, 2003 of
approximately $30,000 as compared to net income of approximately $52,000 for the
corresponding period of 2002. The Partnership realized income of approximately
$8,000 for the three months ended June 30, 2003 compared to net income of
approximately $11,000 for the three months ended June 30, 2002. The decrease in
net income for the three and six months ended June 30, 2003 is primarily
attributable to a decrease in income from discontinued operations.
On July 31, 2003, the Partnership sold Lake Forest Apartments to an unaffiliated
third party for $4,400,000. After payment of closing costs the net proceeds
received by the Partnership were approximately $4,114,000. The sale of the
property resulted in a gain on the sale during the third quarter of 2003 of
approximately $2,948,000. In accordance with SFAS No. 144, the assets and
liabilities of the property have been classified as held for sale at June 30,
2003 and the operations of the property have been shown as income from
discontinued operations for the six months ended June 30, 2003 and 2002.
Revenues for the six month periods ended June 30, 2003 and 2002 were
approximately $344,000 and $424,000, respectively.
Subsequent to the sale of Lake Forest Apartments on July 31, 2003, the
Partnership approved a distribution of sale proceeds of approximately $3,882,000
or $44.44 per limited partnership unit. Because Lake Forest Apartments was the
only investment property held by the Partnership, the Managing General Partner
is now in the process of winding up and dissolving the Partnership. The Managing
General Partner expects that a final distribution will be made after all the
Partnership's expenses from the sale and costs of liquidation are finalized.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
provides accounting guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Partnership adopted SFAS 144 effective January 1,
2002. In accordance with SFAS 144 Lake Forest Apartments is considered as assets
held for sale as of June 30, 2003. As a result, the accompanying consolidated
statements of operations are restated as of January 1, 2002 for the year ended
December 31, 2002 to reflect the operations of Lake Forest Apartments as loss
from discontinued operations. The consolidated balance sheet reflects the assets
and liabilities of Lake Forest Apartments as assets held for sale and
liabilities related to assets held for sale, respectively. Approximately
$344,000 and $424,000 in revenues is included in the loss from discontinued
operations of Lake Forest Apartments for the six months ended June 30, 2003 and
2002, respectively.
The decrease in income from discontinued operations for the three and six months
ended June 30, 2003 is primarily attributable to a decrease in rental income at
the property held for sale. The decrease in rental income is due to a decrease
in occupancy and an increase in concessions offered to tenants at Lake Forest
Apartments.
General and administrative expenses decreased during the three and six months
ended June 30, 2003 due to a decrease in the costs of services included in the
management reimbursements to the Managing General Partner as allowed under the
Partnership Agreement and reduced fees earned by the Managing General Partner on
cash flows from operations. Also included in general and administrative expenses
are costs associated with the quarterly and annual communications with investors
and regulatory agencies and the annual audit required by the Partnership
Agreement.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2003, the Partnership had cash and cash equivalents of approximately
$114,000 compared to approximately $129,000 at June 30, 2002. The net increase
in cash and cash equivalents of approximately $56,000 since December 31, 2002 is
due to approximately $71,000 of cash provided by operating activities partially
offset by approximately $15,000 of cash used in investing activities. Cash used
in investing activities consisted of property improvements and replacements. The
Partnership invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the Partnership's property to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. The Managing
General Partner monitors developments in the area of legal and regulatory
compliance and is studying new federal laws, including the Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance
measures with regard to governance, disclosure, audit and other areas. In light
of these changes, the Partnership expects that it will incur higher expenses
related to compliance, including increased legal and audit fees. Capital
improvements planned for the Partnership's property are detailed below.
During the six months ended June 30, 2003, the Partnership completed
approximately $15,000 of capital improvements at Lake Forest Apartments
consisting primarily of floor covering replacements. These improvements were
funded from operating cash flow. Subsequent to June 30, 2003, the property was
sold to an unrelated party.
The additional capital expenditures will be incurred only if cash is available
from operations or Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership.
The Partnership distributed the following amounts during the six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2003 Unit June 30, 2002 Unit
Operations $ -- $ -- $ 150 $ 1.71
Subsequent to the sale of Lake Forest Apartments on July 31, 2003, the
Partnership distributed approximately $3,882,000 or $44.44 per limited
partnership unit of sale proceeds.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and remaining sale proceeds from
the sale of the property. The Partnership's distribution policy is reviewed on a
monthly basis. There can be no assurance that the Partnership will generate
sufficient funds from operations, after required capital expenditures, to permit
additional distributions to its partners during the remainder of 2003 or
subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 45,112 limited partnership units
(the "Units") in the Partnership representing 52.01% of the outstanding Units at
June 30, 2003. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will acquire additional Units in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Pursuant to the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters that include, but are not limited to, voting on certain amendments to
the Partnership Agreement and voting to remove the Managing General Partner. As
a result of its ownership of 52.01% of the outstanding Units, AIMCO and its
affiliates are in a position to control all voting decisions with respect to the
Partnership. Although the Managing General Partner owes fiduciary duties to the
limited partners of the Partnership, the Managing General Partner also owes
fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of
the Managing General Partner, as managing general partner, to the Partnership
and its limited partners may come into conflict with the duties of the Managing
General Partner to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States which require the Partnership to make
estimates and assumptions. The Partnership believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
The investment property is recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of the property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment property. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned and
the Partnership fully reserves all outstanding balances over thirty days. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. Controls and Procedures
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the Managing General Partner, who are the equivalent of the Partnership's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the principal
executive officer and principal financial officer of the Managing General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing General Partner and
several of their affiliated partnerships and corporate entities. The action
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities that were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint, which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court dismissed without leave to amend certain of the plaintiffs' claims. On
February 11, 2002, plaintiffs filed a motion seeking to certify a putative class
comprised of all non-affiliated persons who own or have owned units in the
partnerships. The Managing General Partner and affiliated defendants opposed the
motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for
class certification and took the matter under submission after further briefing,
as ordered by the court, was submitted by the parties. On July 10, 2002, the
Court entered an order vacating the trial date of January 13, 2003 (as well as
the pre-trial and discovery cut-off dates) and stayed the case in its entirety
through November 7, 2002 so that the parties could have an opportunity to
discuss settlement. On October 30, 2002, the court entered an order extending
the stay in effect through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The Heller action was brought as a purported
derivative action, and asserted claims for, among other things, breach of
fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial
dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the
Heller action with the Nuanes action and stated that the Heller action was filed
in order to preserve the derivative claims that were dismissed without leave to
amend in the Nuanes action by the Court order dated July 10, 2001. On October 5,
2001, the Managing General Partner and affiliated defendants moved to strike the
first amended complaint in its entirety for violating the Court's July 10, 2001
order granting in part and denying in part defendants' demurrer in the Nuanes
action, or alternatively, to strike certain portions of the complaint based on
the statute of limitations. Other defendants in the action demurred to the
fourth amended complaint, and, alternatively, moved to strike the complaint. On
December 11, 2001, the court heard argument on the motions and took the matters
under submission. On February 4, 2002, the Court served notice of its order
granting defendants' motion to strike the Heller complaint as a violation of its
July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs
filed a notice appealing the order striking the complaint. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provided for the limitation of the allowable costs which the
Managing General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3.1, Amended Certificate and Agreement of the Limited
Partnership filed in Form S-11 dated June 2, 1983, which is
incorporated herein by reference.
Exhibit 10.21, Purchase and Sale Contract between Angeles Income
Properties III, LP and Bruce Kirkland, d/b/a The Kirkland Company
dated May 15, 2003.
Exhibit 10.22, Reinstatement and Amendment to Purchase and Sale
Contract between Angeles Income Properties III, LP and Bruce
Kirkland, d/b/a The Kirkland Company dated July 25, 2003.
Exhibit 10.23, Assignment of Contract Rights between Bruce Kirkland
d/b/a The Kirkland Company and Lake Forest Apartments, LLC, a
Mississippi limited liability company dated July 25, 2003.
Exhibit 31.1, Certification of equivalent of Chief Executive Officer
pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2, Certification of equivalent of Chief Financial Officer
pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1, Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES INCOME PROPERTIES, LTD. III
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Income
Properties, Ltd. III;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Angeles Realty
Corporation II, equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Income
Properties, Ltd. III;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Angeles Realty Corporation II,
equivalent of the chief financial officer of
the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Angeles Income
Properties, Ltd. III (the "Partnership"), for the quarterly period ended June
30, 2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Patrick J. Foye, as the equivalent of the chief executive
officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the
chief financial officer of the Partnership, each hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.